- Since last fall, a surge in drilling and completions activity in the Permian Basin has led to a dramatic increase in sand demand and, in turn, substantial sand price inflation.
- In response, sand mining companies have begun investing in a slew of new mines in the area.
- While new sand mines will deepen the market’s oversupply, prevailing logistical bottlenecks will likely prevent significant sand price deflation from occurring.
Sand Demand and Sand Price Inflation Since Last Fall
Demand for sand used in oil field operations plummeted after the oil-price crash in mid-2014 and the subsequent sharp drop-off in well completions activity. This trend, however, has recently reversed. Since late 2016, a surge in drilling activity in the Permian, coupled with the activation of drilled-but-uncompleted wells (DUCs), has led to a massive increase in sand demand in the basin (Figure 1). During the first half of 2017, total US sand proppant demand was 63 million tons per year, a 75% increase over 2016 levels.
Figure 1: Permian Basin Sand Demand
Sources: United States Energy Information Administration, Baker Hughes, PowerAdvocate